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Uncertainty and the Value of Information with Stochastic Losses from Global Warming
Author(s) -
Peck Stephen C.,
Teisberg Thomas J.
Publication year - 1996
Publication title -
risk analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.972
H-Index - 130
eISSN - 1539-6924
pISSN - 0272-4332
DOI - 10.1111/j.1539-6924.1996.tb01453.x
Subject(s) - uncertainty analysis , value (mathematics) , value of information , climate change , key (lock) , sensitivity analysis , global warming , econometrics , economics , environmental science , computer science , mathematics , statistics , mathematical economics , ecology , computer security , biology
We present an uncertainty analysis conducted using CETA‐R, a model in which the costs of climate change are specified as Risks of large losses. In this analysis, we assume that three key parameters may each take on “high” or “low” values, leading to eight possible states of the world. We then explore optimal policies when the state of the world is known, and under uncertainty. Also, we estimate the benefits of resolving uncertainty earlier. We find that the optimal policy under uncertainty is similar to the policy that is optimal when each of the key parameters is at its low value. We also find that the value of immediate uncertainty resolution rises sharply as the alternative to immediate resolution is increasingly delayed resolution.